As a company director your list of things to do can seem never ending, so sorting out your pension can easily fall to the bottom of this list. But if you’d like to save some tax, we’re here to tell you why you should make this a priority.
It’s well known that having a pension is a great way to save for your future and one of the last few tax breaks available to limited companies. Wondering how this is tax efficient? Well Paying pension contributions will reduce your company’s taxable profits and therefore your Corporation Tax liability.
How much tax can I save on pension contributions?
For the 2022/23 and the 2021/22 tax years, the Corporation Tax rate is 19%. So for every £100 your company earns as profit, you’ll pay Corporation Tax of £19, reducing the amount you can take from your company as a dividend to £81.
Paying £100 into an employee’s pension fund effectively costs the company only £81 due to the reduction in Corporation Tax payable and, over time, the £100 investment can hopefully grow within the pension fund.
When can I start withdrawing from my pension fund?
Generally, you can start withdrawing from your pension fund at the age of 55. This can be used to help you retire early or to top up your income if you are still working. Again, you should take specialist advice on this.
How much can I contribute to my employee’s pension scheme?
You can pay as much into your employee’s pension scheme as you like, subject to HMRC’s contribution limits and rules.
Your contributions will be tax-free as long as they do not exceed the annual allowance, which is currently capped at £40,000